bauxite jamaican mining

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Industry

Caribbean Islands Table of Contents

Mining

In spite of its relative decline, during the 1980s mining remained themost important sector of the economy in terms of foreign exchange(see fif.___, Mining and Related Activities). Bauxite was by far themost dominant mineral and subsector in the economy. The mining ofbauxite had generated over 50 percent of export earnings since the1960s. Nevertheless, bauxite production was declining and output in

1985 equaled 6 million tons, only half of the 1980 level (see table __,Bauxite and Alumina Production and Exports (1980-1985), AppendixA). As bauxite exports declined and receipts from tourism increased inthe 1980s, it seemed possible that tourism might replace bauxite asthe greatest foreign-exchange earner.

Although a large foreign-exchange earner, bauxite productionrepresented only 5 percent of GDP in 1985 and employed under 1percent of the labor force. The very capital-intensive nature of theindustry made it a controversial subsector because of the high rates ofunemployment on the island. Likewise, the large presence of NorthAmerican aluminum companies extracting the ore was also aprominent issue.

Bauxite was first produced commercially in Jamaica in 1952 byReynolds Metals Ltd. In only six years, Jamaica became the largestproducer of bauxite in the world. It retained this position until 1971,when it was surpassed by Australia. In the late 1980s, Jamaica rankedthird in worldwide production behind Australia and Guinea andaccounted for roughly 13 percent of world output of bauxite and 7percent of alumina. During the first half of the 1980s, Jamaicanbauxite production declined drastically as half of the six NorthAmerican companies ceased production or left the island completely,and world prices for bauxite entered a prolonged depression becauseof oversupply. The departure of foreign companies encouraged thegovernment to buy into the bauxite industry, and by 1986 thegovernment-run Clarendon Aluminum Plant was the most successfulproducer on the island.

Jamaica's bauxite reserves are large, exceeding 1.5 billion tons. At thepresent rate of extraction, reserves could last another 150 years.Jamaica's bauxite is not extremely alumina pure; one ton of Jamaicanbauxite contains only about 0.4 tons of alumina. The island's bauxitecomparative advantage lies in the easy extraction of the metal ore asa result of its close proximity to the surface.

Although generally beneficial for the economy, Jamaica's bauxiteindustry must import large amounts of caustic soda and heavymachinery to mine and export the ore, making the industry highlyimport intensive. Likewise, the mining of the ore has raisedenvironmental concerns over bauxite by-products discharged in highlyvisible red lakes.

Jamaica also has significant reserves of several other commerciallyviable minerals, including limestone, gypsum, silica, and marble.Limestone covers about 80 percent of the island, making the totalestimated reserves of 50 billion tons virtually inexhaustible. Certainlimestone reserves are of very high quality. Nevertheless, limestoneproduction has been rather small and extremely dependent onexternal market forces. Although 83,000 tons of limestone wereexported in 1984, none was exported in 1985, and estimates for 1986were placed at close to 100,000 tons.

Gypsum, mined in eastern Jamaica since 1949, was the second mostimportant mineral in the 1980s. Reserves of at least 80 percent purityamounted to over 4 million tons out of total reserves exceeding 40

million tons. Some gypsum was used in the local manufacturing oftiles and cement, but over 90 percent of the mineral and itsderivative, anhydride, were exported unprocessed to the United Statesand Latin America. Jamaica normally produced roughly 180,000 tons ofgypsum a year.

Manufacturing

For a small developing country, Jamaica had quite diversified
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manufacturing. Sugar, condensed milk, rum, edible oils, cloth carpet,cigarettes, and shoes were some of the more basic manufacturedgoods. Production also included heavier industrial goods, such assulfuric acid, detergents, fertilizers, gasoline, petroleum, batteries,and steel. The sector accounted for 15.7 percent of GDP in 1985 andemployed 127,000 workers, or 12 percent of the labor force.

During the 1980s, the manufacturing sector underwent its first majorchanges since independence, reflecting the government's structuraladjustment policies, which emphasized labor-intensive, export-oriented light manufacturing. As a result, a growing percentage ofmanufactured goods, particularly nontraditional items, were producedsolely for export. Apparel and sewn products, mineral fuels, andmiscellaneous manufactured goods experienced the fastest growthrate.

The manufacturing sector was historically linked to agriculturalprocessing until World War II, when general shortages encouragedimport substitution industrialization (see Glossary) in such areas asclothing and footwear. From 1950 to 1968, the sector's growthoutpaced all other sectors of the economy, expanding 7.6 percentannually, including over 10 percent growth in the last five years of thisperiod. The growth of domestic industries also relied on generousgovernment import protection in the form of quantitative restrictionsbeginning in the 1960s and an overvalued exchange rate starting inthe 1970s. Chemicals, cement, furniture, and metal products were themost important subsectors to emerge as a result of the importsubstitution policies.

Two general types of manufacturing firms operated in Jamaica afterWorld War II. The first type was generally foreign owned, capitalintensive, and export oriented, usually operating under the ExportIndustries Law. Some of these firms, however, were labor intensiveand commonly called "screwdriver" industries because only a smallpercentage of the value added was performed in Jamaica. The secondtype of firm was typically locally owned, generously protected, anddomestically oriented. Many of these manufacturers were quiteinefficient but did serve to integrate certain subsectors of the nationaleconomy.

In an attempt to reduce previous price distortions, the manufacturingsector undertook structural adjustment reforms from 1982 to 1985.

The adjustment measures included numerous currency devaluations,unification of the two-tier exchange rate, relaxation of importlicensing, reductions in quantitative restrictions, encouragement offoreign investment, and export promotion to thirdcountry or hard-currency markets. During the structural adjustment process, many lessefficient producers reduced output or closed altogether. Factoryclosings were particularly common in 1982. Declines in investment andoutput were most frequent in the metal, chemical, and domesticapparel subsectors. In 1985 traditional manufacturing's output was 30percent less than 1984 levels. At the same time, however, investmentin new export-oriented industries increased quickly, helping to keepthe sector afloat.

As noted previously, the Seaga government defined seven "priority

subsectors" in the early 1980s, emphasizing them in terms ofinvestment, factory space, and financing. Of all the prioritysubsectors, only garments and agro-industrial products had achievedany real success by 1987. In 1985 garment and processed foodexports increased 15 percent and 11 percent, respectively, over 1984levels. Garment factories in particular skyrocketed, totalling 148companies by 1986, with fifty-six new 807 type firms established from1981 to 1986. Although roughly 50 percent of these new firms weresmall and employed fewer than 50 people, 6 companies had over 500workers. The great majority of production in these priority areas wasdestined for third-country markets, primarily the United States. Third-country markets' share of exports rose from 47 percent to 74 percentbetween 1983 and 1985. Simultaneously, manufactured exports toCaricom decreased by 50 percent.

Regarded as the engine of growth under the structural adjustmentpolicies, manufacturing received renewed government attention in the1980s. Several government-sponsored agencies or activities wereintroduced or reorganized to provide technical assistance, financing,export promotion, and marketing assistance. New efforts to improvetechnical assistance to exporting manufacturers were offered by boththe JNIP and the Jamaican Industrial Development Corporation (JIDC).In 1985 the Technical Assistance Fund for Exporters was created toprovide further aid in new product development. Institutional support


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for financing exports was available from the National DevelopmentBank, the Trafalgar Development Bank, the Export Development Fund,and the Jamaican Export-Import Bank, all newly organized orreorganized. Export promotion and marketing assistance wereprovided by the Jamaica National Export Corporation and the JNIP.

Construction

In the early 1980s, the construction industry had yet to recover fromthe short- and long-term decline experienced during the 1970s.Construction had increased during the initial expansion of the bauxiteand tourist industries, because both required a great deal of physicalinfrastructure. Construction stagnated in the 1970s, however, because

of aggregate declines in investment, downturns in tourism, and thepeak in bauxite mining. By the 1980s, the most common constructionactivities were new factory space, tourist hotels, and residentialhousing.

Construction recovered in 1982 and 1983, but real production declinedin 1984 and 1985 by 5 percent and 14 percent, respectively.Construction's share of GDP dropped from 6.1 percent in 1982 to 5.4percent in 1985. Total output in 1985 equaled US$171 million, withvirtually all activity dedicated to the local market. Only 745 housingstarts and 1,867 completions were registered in 1985, down sharplyfrom 1984 levels of 3,114 starts and 3,132 completions. Private-sectorconstruction operations decreased by over 50 percent in 1985 alone. A29-percent increase in the Ministry of Construction expenditureshelped to stabilize the sector's downfall; the JIDC's national factorybuilding program was important in this regard.

Many of the materials used in the construction industry were producedlocally, although imports of iron, steel, and wood remained significant.Cement production reached 240,000 tons in the mid-1980s. All cementwas produced at the Caribbean Cement (I.C.) plant in Kingston, ofwhich government shares were sold to a Norwegian company in 1987.Steel, produced by the Caribbean Steel Company and BRC Ltd., stoodat 18,300 tons by mid-decade. The Jamaica Mortgage Bank and theNational Housing Trust were the key financial institutions in theconstruction sector.

Energy

Jamaica has no known oil reserves; as a consequence, the island wasabout 90 percent dependent on imported oil for energy generation inthe late 1980s. Most of Jamaica's oil imports came from Mexico,Venezuela, Trinidad and Tobago, and the Netherlands Antilles. Over30 percent of imported petroleum imports were destined for the oil-intensive alumina subsector. Oil resources and imports were managedby the state-owned Petroleum Corporation of Jamaica (PCJ). In 1985the PCJ accounted for 73 percent of the imported petroleum, withprivate bauxite companies directly importing the other 27 percent.Total oil consumption averaged nearly 13 million barrels a year in the1980s.

The island's only oil refinery, located in Kingston, had a refining

capacity of 36,000 barrels per day. Formerly owned by Exxon, therefinery was purchased by the government of Jamaica in 1982 forUS$55 million. Subsequent to the refinery's sale to the government,PetroJam, a subsidiary of the PCJ, managed the plant's operations.The Kingston refinery was considered strategically important toJamaica because of the country's great dependence on foreign oil andthe high oil intensivity of the economy. For example, the per capitaenergy consumption of Jamaica in the early 1980s exceeded that ofBrazil or the Republic of Korea (South Korea), mostly as a result ofthe bauxite industry.

Ethanol, an octane enhancer, was produced for export for the firsttime in 1985. The first ethanol plant was established in the early1980s by Tropicana, a subsidiary of a California-based firm.Representing an investment of about US$23 million, the plant waseasily the largest investment that had entered Jamaica or theCaribbean under the CBI by 1987. Even though the plant had notcompleted a full year of production in 1985, output still reachedapproximately 75 million liters of anhydrous ethanol. The ethanol wasexported solely to the United States market. In addition, in 1987 theJamaican government arranged with Belize to process ethanol fromsugarcane there.

Demand for electricity grew with the country's aggregate growth. In
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the mid-1980s, roughly 90 percent of all energy generated was oilbased. Hydroelectric power and bagasse (sugarcane residue) fuelsmade up most of the balance of energy generation. Governmentenergy policy in the 1970s focused on increasing rural access toelectricity. Before 1975 only about 10 percent of rural areas hadelectricity. In 1975 the government of Jamaica, in conjunction with theInter-American Development Bank (IDB), launched the RuralElectrification Program, which improved rural access to electricity. By1987 general access to electricity was greater than in most developingcountries, about 54 percent, with access in urban areas reaching closeto 100 percent.

Power outages were very common until the mid-1980s, when thesector was upgraded and expanded as part of physical infrastructureimprovements in the new industrial strategy. The island's installedcapacity increased from 680 megawatts in 1980 to over 700megawatts by 1983. Government electric policy, implemented by theMinistry of Public Utilities and Transport, focused on efficiency,conservation, and alternative energy sources in the 1980s. Work ondeveloping alternative energy sources focused on hydropower, peat,coal, bagasse, and others.

In 1983 approximately 70 percent of total electricity was generated bythe government-owned Jamaica Public Service Company whereas theremaining 30 percent was produced by private industry in alumina,sugar, and cement factories. Electricity was produced primarily bysteam plants (83 percent), although hydroelectric systems (11percent) and gas/diesel plants (6 percent) were increasingly being

used. At least 60 percent of electricity was consumed in the majorurban areas of Kingston and Montego Bay. Total commercial energyconsumption was equivalent to 11.2 million barrels of oil in 1985. Theelectrical transmission system included 864 kilometers of 138-kilovoltsand 69-kilovolt lines in addition to some 8,000 kilometers of primarydistribution lines at a voltage of 24 kilovolts and below. Oil prices andelectricity rates became political issues in the 1980s, as oil pricesremained above market prices and electricity rates increased verysharply.

More about the Economy of Jamaica.

Source: U.S. Library of Congress

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